Days of Revolt: Junk Economics and the Future (2/2)

23 05 2018

In this episode of teleSUR’s Days of Revolt, Chris Hedges continues his discussion with UMKC economics professor Michael Hudson on his new book Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy

Part 1 is available here…..





Michael Hudson – How We Got to Junk Economics

23 05 2018

In this episode of Days of Revolt, Chris Hedges interviews Michael Hudson, UMKC economics professor and author of Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy. In the first half of their conversation, Hedges and Hudson trace the history of classical economics and explore Marx’s interpretation of capitalism as exploitation. http://multimedia.telesurtv.net/v/day…

PART 2 is available here….





To collapse or not to collapse

6 05 2018

Following on from posting David Holmgren’s inspiring speech on collapse yesterday, I’ve had several requests to post the rest of the debate in question, and so here it is in its entirety for your viewing satisfaction……

The SLF Great Debate presents
To Collapse or Not To Collpase
Pushing for economic ruin or building a great transition

Friday 13th February
Deakin Edge, Federation Square
http://www.slf.org.au/event/the-great-debate/





It’s all happening. Still.

10 02 2016

While working on those entangled branches for the past few days, I listen to podcasts on the ute radio that I’ve downloaded over the past 12 to 18 months.  It suddenly hit me that the three people whose work I follow and respect the most are women’s. I can’t help wondering why this is.  Could women be actually cleverer than men?  Are they most able to think into the future?

Susan Krumdieck is the engineer with more degrees than a thermometer plus a PhD, Nicole Foss whom I think can match Susan’s pedigree but has additional expertise in economic matters, and Gail Tverberg, the actuary with the uncanny ability to analyse what’s going on and explain it in a way most people should understand…… the only male standout for me is Chris Martenson, though I think his website is too much about how to stay rich in the collapse rather than how to survive it….

A couple of days ago, not one but two really good articles landed in my news feed commenting on how the collapse of the price of oil is going to cause mayhem this year, and is a clear sign of diminishing returns.  One was by Gail, the other quoted her….

Nicole has written a long article which was published in three parts over at the Automatic earth, I highly recommend it.  Nicole’s article being almost book length, I will leave it to you to follow the link and read it yourself.  Gail’s article, for me, begins with…:

the effects of not having enough energy flows may spread more widely than the individual plant or animal that weakens and dies. If the reason a plant dies is because the plant is part of a forest that over time has grown so dense that the plants in the understory cannot get enough light, then there may be a bigger problem. The dying plant material may accumulate to the point of encouraging forest fires. Such a forest fire may burn a fairly wide area of the forest. Thus, the indirect result may be to put to an end a portion of the forest ecosystem itself.

How should we expect an economy to behave over time? The pattern of energy dissipated over the life cycle of a dissipative system will vary, depending on the particular system. In the examples I gave, the pattern seems to somewhat follow what Ugo Bardi calls a Seneca Cliff.

Figure 1. Seneca Cliff by Ugo Bardi

The Seneca Cliff pattern is so-named because long ago, Lucius Seneca wrote:

It would be some consolation for the feebleness of our selves and our works if all things should perish as slowly as they come into being; but as it is, increases are of sluggish growth, but the way to ruin is rapid.

This is doubly interesting, for me at least, because it appears that oil, and energy production generally, may be acting just like the above cliff….

Figure 6 shows that the FSU’s consumption of energy products started falling precipitously in 1991, the year of the collapse–very much a Seneca Cliff type of decline.

Figure 5. Former Soviet Union energy consumption by source, based on BP Statistical Review of World Energy Data 2015.

Gail explains how so many believe the wrong views of how the economy works..

The Standard Wrong Belief about the Physics of Energy and the Economy

There is a standard wrong belief about the physics of energy and the economy; it is the belief we can somehow train the economy to get along without much energy.

In this wrong view, the only physics that is truly relevant is the thermodynamics of oil fields and other types of energy deposits. All of these fields deplete if exploited over time. Furthermore, we know that there are a finite number of these fields. Thus, based on the Second Law of Thermodynamics, the amount of free energy we will have available in the future will tend to be less than today. This tendency will especially be true after the date when “peak oil” production is reached.

According to this wrong view of energy and the economy, all we need to do is design an economy that uses less energy. We can supposedly do this by increasing efficiency, and by changing the nature of the economy to use a greater proportion of services. If we also add renewables (even if they are expensive) the economy should be able to get along fine with very much less energy.

These wrong views are amazingly widespread. They seem to underlie the widespread hope that the world can reduce its fossil fuel use by 80% between now and 2050 without badly disturbing the economy. The book 2052: A Forecast for the Next 40 Years by Jorgen Randers seems to reflect these views. Even the “Stabilized World Model” presented in the 1972 book The Limits to Growth by Meadows et al. seems to be based on naive assumptions about how much reduction in energy consumption is possible without causing the economy to collapse.

It’s exactly what George Monbiot either can’t understand, or refuses to see….

So there must be another story.

A monster called ‘diminishing returns’

There is, and it’s a rather grim energy fairy tale. This one shows how the world’s economy depends on the quality of energy burned, and not the amount of money spent. When economies spend cheap oil, GDP rises; when they switch to costly and unconventional stuff, growth comes to a screeching halt.

In this unfolding story, cheap credit played a big role. It allowed an industry to carelessly borrow trillions to chase ultra-expensive and risky resources such as bitumen and shale oil.

An energy industry laden with toxic debt is now earning less money than what it costs to shovel bitumen or frack shale. And this kind of debt is not going to end well for financial markets. Or for ordinary people.

But the darkest character in this fairy tale is the monster called diminishing returns.

On a diet of cheap oil, the world financial system grew on energy surpluses like a wildfire dines on trees in a forest.

But no more. The cheap stuff is gone, and companies are now frantically fracking North Dakota at a cost of $60 a barrel or mining northern Alberta’s heavy bitumen at costs as high as $80 a barrel. With oil at $30 a barrel, many companies are, as respected Houston analyst Art Berman recently put it, “losing their asses.”

Diminishing returns explain why. Imagine a 20-year-old vehicle that now costs more money to maintain than it does to drive. Every time the owner pours more cash and energy into the clunker, the benefits and rewards keep shrinking. An old car can be a treadmill into poverty.

In a 2014 paper for the Philosophical Transactions of the Royal Society, David Murphy, an energy expert at St. Lawrence University, chronicles what diminishing returns really mean in energy terms.

For every barrel of energy invested in global oil production, 17 are now extracted and turned into wealth. (Nearly 100 years ago, one barrel of investment yielded 100 barrels more, a cornucopia that built the global economy.)

But the industry must now drill deeper and deeper into ugly reservoirs and then fracture them apart to capture molecules of gas or oil. As a consequence, U.S. oil production yields only 11 barrels for every barrel invested, and that number is fast declining. Ultra-heavy bitumen and other unconventional hydrocarbons capture returns of less than 10 and in many cases as low as three.

Energy resources that deliver such paltry returns are civilization shrinkers. They cannibalize other resources and offer no energy surplus.

Enjoy your homework…… I’ve got things to do to escape this predicament!





Programmed to ignore

24 04 2015

I guess many of my readers also follow Tom Murphy’s marvellous blog ‘Do the Math’ which until his last post where he shortened it to DtM I had not realised has the same initials as mine…!  Now I’ve known for some time that my Myers-Briggs personality trait is INTJ, but until reading Tom’s latest post, I had no idea of the repercussions of having this trait was, let alone the impact of having everyone else who is not INTJ.  Nor the impact of the fact that likely not one single person running the world is either.

To outsiders, INTJs may appear to project an aura of “definiteness”, of self-confidence. This self-confidence, sometimes mistaken for simple arrogance by the less decisive, is actually of a very specific rather than a general nature; its source lies in the specialized knowledge systems that most INTJs start building at an early age. When it comes to their own areas of expertise — and INTJs can have several — they will be able to tell you almost immediately whether or not they can help you, and if so, how. INTJs know what they know, and perhaps still more importantly, they know what they don’t know.

INTJs are perfectionists, with a seemingly endless capacity for improving upon anything that takes their interest. What prevents them from becoming chronically bogged down in this pursuit of perfection is the pragmatism so characteristic of the type: INTJs apply (often ruthlessly) the criterion “Does it work?” to everything from their own research efforts to the prevailing social norms. This in turn produces an unusual independence of mind, freeing the INTJ from the constraints of authority, convention, or sentiment for its own sake.

That’s me pretty much down to a T.  This Wikipedia page classifies us INTJ people as Mastermind Architects….  I like that.  A640px-CognitiveFunctions lot actually!  Being a Mastermind goes well with being in control of my Matrix!

But the true master discovery here is that the vast majority of people who visit our sites are INTJ.

About a year ago, Tom tells us, a friend shared with me a graphic from an informal survey on the Peak Prosperity website. This is Chris Martenson’s site, which hosts a “Crash Course” consisting of 4.6 hours of quality video content describing why we should worry that tomorrow may not be bigger than today, and why the growth phase may be just that. As a related aside, I once did a podcast interview for Chris Martenson.

The Peak Prosperity site visitors probably have a lot of overlap with Do the Math readers: the fundamental concern is the same. These are people who are—by and large—not content with extrapolation of the here-and-now into tomorrow. We think there will be fundamental changes in how the full Earth operates compared to our frontier days of resource exploitation in an empty Earth. In many cases, there are compelling calculations to motivate concern. Rather than trying to predict a dire future, my goal in “Did the Math” was to build a plausible case for things going off the rails in the desperate hope that recognition of this possibility would spur action now to steer clear of this potential pitfall (thereby making me wrong, in a happy way). It’s trying to expose a blind spot—a sleeping dragon.

But that blind spot may be stamped into human nature. So what about this survey?

Tom’s latest entry has loads of information about his survey results, too long and complicated to duplicate here, so I urge you to read his site for all the amazing fine print and statistical analysis only an INTJ physicist (which I now know my son is also!) would persevere with….  Tom’s conclusions, however, are scary.  We will almost certainly fail, as a civilisation, to act on the coming predicaments, because most of us are not INTJ and are therefore programmed to ignore all the prognostications within the contents of sites like ours.  “As a cerebral type,” Tom writes, “it gives me some satisfaction to have insight into how and why we may fail. If the world falls apart before I die, at least I’ll have some inkling as to what’s going on, and won’t be as psychologically shattered by the affair. But I’ll be one of a pitifully small number, I’m afraid.”

So there you have it….  we are on our own.  Maybe all the world’s INTJ’s should head for Tasmania, turf out anyone who is not (or the closely allied INTP/INFJ like my dear better half!) and mount its future defence against the poor souls who simply don’t make the grade!  One more link to Tom’s brilliant work…

I would love my own readers to do their own personality test and report back in the comments to see if we fare similarly, because it’s a fascinating experiment if nothing else.





The collapse of oil prices and energy security in Europe

17 11 2014

This is a written version of the brief talk I gave at the hearing of the EU parliament on energy security in Brussels on Nov 5, 2014. It is not a transcription, but a shortened version that tries to maintain the substance of what I said. In the picture, you can see the audience and, on the TV screen, yours truly taking the picture.

Ladies and gentlemen, first of all, let me say that it is a pleasure and an honour to be addressing this distinguished audience today. I am here as a faculty member of the University of Florence and as a member of the Club of Rome, but let me state right away that what I will tell you are my own opinions, not necessarily those of the Club of Rome or of my university.

This said, let me note that we have been discussing so far with the gas crisis and the Ukrainian situation, but I have to alert you that there is another ongoing crisis – perhaps much more worrisome – that has to do with crude oil. This crisis is being generated by the rapid fall in oil prices during the past few weeks. I have to tell you that low oil prices are NOT a good thing for the reasons that I will try to explain. In particular, low oil prices make it impossible for many oil producers to produce at a profit and that could generate big problems for the world’s economy, just as it already happened in 2008.

So, let me start with an overview of the long term trends of oil prices. Here it is, with data plotted from the BP site.

These data are corrected for inflation. You see strong oscillations, but also an evident trend of growth. Let’s zoom in, to see the past thirty years or so:

These data are not corrected for inflation, but the correction is not large in this time range. Prices are growing, but they stabilized during the past 4-5 years at somewhere around US 100 $ per barrel. Note the fall during the past month or so. I plotted these data about one week ago, today we are at even lower prices, well under 80 dollars per barrel.

The question is: what generates these trends? Obviously, there are financial factors of all kinds that tend to create fluctuations. But, in the end, what determines prices is the interplay of demand and offer. If prices are too high, people can’t afford to buy; that’s what we call “demand destruction”. If prices are too low, then it is offer that is destroyed. Simply, producers can’t sell their products at a loss; not for a long time, at least. So there is a range of prices which are possible for oil: too high, and customers can’t buy, too low, and companies can’t sell. Indeed, if you look at historical prices, you see that when they went over something like 120 $/barrel (present dollars) the result was a subsequent recession and the collapse of the economy.

Ultimately, it is the cost of production that generates the lower price limit. Here, we get into the core of the problem. As you see from the price chart above, up to about the year 2000, there was no problem for producers to make a profit selling oil at around 20 dollars per barrel. Then something changed that caused the prices to rise up. That something has a name: it is depletion.

Depletion doesn’t mean that we run out of oil. Absolutely not. There is still plenty of oil to extract in the world. Depletion means that we gradually consume our resources and – as you can imagine – we tend to extract and produce first the least expensive resources. So, as depletion gradually goes on, we are left with more expensive resources to extract. And, if extracting costs more, then the market prices must increase: as I said, nobody wants to sell at a loss. And here we have the problem. Below, you can see is a chart that shows the costs of production of oil for various regions of the world. (From an article by Hall and Murphy on The Oil Drum)

Of course, these data are to be taken with caution. But there are other, similar, estimates, including a 2012 report by Goldman and Sachs, where you can read that most recent developments need at least 120 $/barrel to be profitable. Here is a slide from that report.

So, you see that, with the present prices, a good 10% of the oil presently produced is produced at a loss. If prices were to go back to values considered “normal” just 10 years ago, around 40 $/barrel, then we would lose profitability for around half of the world’s production. Production won’t collapse overnight: a good fraction of the cost of production derives from the initial investment in an oil field. So, once the field has been developed, it keeps producing, even though the profits may not repay the investment. But, in the long run, nobody wants to invest in an enterprise at so high risks of loss. Eventually, production must go down: there will still be oil that could be, theoretically, extracted, but that we won’t be able to afford to extract. This is the essence of the concept of depletion.

The standard objection, at this point, is about technology. People say, “yes, but technology will lower costs of extraction and everything will be fine again”. Well, I am afraid that it is not so simple. There are limits to what that technology can do. Let me show you something:

That object you see at the top of the image is a chunk of shale. It is the kind of rock out of which shale oil and shale gas can be extracted. But, as you can imagine, it is not easy. You can’t pump oil out of shales; the oil is there, but it is locked into the rock. To extract it, you must break the rock down into small pieces; fracture it (this is where the term “fracking” comes from). And you see on the right an impression of the kind of equipment it takes. You can be sure that it doesn’t come cheap. And that’s not all: once you start fracking, you have to keep on fracking. The decline rate of a fracking well is very rapid; we are talking about something like a loss of 80% in three years. And that’s expensive, too. Note, by the way, that we are speaking of the cost of production. The market price is another matter and it is perfectly possible for the industry to have to produce at a loss, if they were too enthusiastic about investing in these new resources. It is what’s happening for shale gas in the US; too much enthusiasm on the part of investors has created a problem of overproduction and prices too low to repay the costs of extraction.

So, producing this kind of resources, the so called “new oil” is a complex and expensive task. Surely technology can help reduce costs, but think about that: how exactly can it reduce the energy that it takes to break a rock into fine dust? Are you going to hammer on it with a smartphone? Are you going to share a photo of it on Facebook? Are you going to run it through a 3D printer? The problem is that to break and mill a piece of rock takes energy and this energy has to come from somewhere.

Eventually, the fundamental point is that you have a balance between the energy invested and the energy returned. It takes energy to extract oil, we can say that it takes energy to produce energy. The ratio of the two energies is the “Net Energy Return” of the whole system, also known as EROI or EROEI (energy return of energy invested). Of course, you want this return to be as high as possible, but when you deal with non renewable resources, such as oil, the net energy return declines with time because of depletion. Let me show you some data.

As you see, the net energy return for crude oil (top left) declined from about 100 to around 10 over some 100 years (the value of 100 may be somewhat overestimated, but the trend remains the same). And with lower net energies, you get less and less useful energy from an oil well; as you can see in the image at the lower right. The situation is especially bad for the so called “new oil”, shale oil, biofuels, tar sands, and others. It is expected: these kinds of oil (or anyway combustible liquids) are the most expensive ones and they are being extracted today because we are running out of the cheap kinds. No wonder that prices must increase if production has to continue at the levels we are used to. Then, when the market realizes that prices are too high to be affordable, there is the opposite effect; prices go down to tell producers to stop producing a resource which is too expensive to sell.

So, we have a problem. It is a problem that appears in the form of sudden price jumps; up and down, but which is leading us gradually to a situation in which we won’t be able to produce as much oil as we are used to. The same is true for gas and I think that the present crisis in Europe, which is seen today mainly as a political one, ultimately has its origin in the gradual depletion of gas resources. We still have plenty of gas to produce, but it is becoming an expensive resource.  It is the same for coal, even though so far there we don’t see shortages; for coal, troubles come more from emissions and climate change; and that’s an even more serious problem than depletion. Coal may (perhaps) be considered abundant (or, at least, more abundant than other fossil resources) but it is not a solution to any problem.

In the end, we have problems that cannot be “solved” by trying to continue producing non renewable resources which in the long run are going to become too expensive. It is a physical problem, and cannot be solved by political or financial methods. The only possibility is to switch to resources which don’t suffer of depletion. That is, to renewable resources.

At this point, we should discuss what is the energy return of renewables and compare it to that of fossil fuels. This is a complex story and there is a lot of work being done on that. There are many uncertainties in the estimates, but I think it can be said that the “new renewables“, that is mainly photovoltaics and wind, have energy returns for the production of electrical energy which is comparable to that of the production of the same kind of energy from oil and gas. Maybe renewables still can’t match the return of fossil fuels but, while the energy return of fossil energy keeps declining, the return of renewables is increasing because of economies of scale and technological improvements. So, we are going to reach a crossing point at some moment (maybe we have already reached it) and, even in terms of market prices, the cost of renewable electric power is today already comparable to that of electric power obtained with fossil fuels.

The problem is that our society was built around the availability of cheap fossil fuels. We can’t simply switch to renewables such as photovoltaics, which can’t produce, for instance, liquid fuels for transportation. So, we need a new infrastructure to accommodate the new technologies, and that will be awfully expensive to create. We’ll have to try to do our best, but we cannot expect the energy transition – the “energiewende” – to be painless. On the other hand, if we don’t prepare for it, it will be worse.

So, to return to the subject of this hearing, we were discussing energy security for Europe. I hope I provided some data for you that show how security is ultimately related to supply and that we are having big problems with the supply of fossil energy right now. The problem can only increase in the future because of the gradual depletion of fossil resources. So, we need to think in terms of supplies which are not affected by this problem. As a consequence, it is vital for Europe’s energy security to invest in renewable energy. We shouldn’t expect miracles from renewables, but they will be immensely helpful in the difficult times ahead.

Let me summarize the points I made in this talk:

Thank you very much for your attention and if you want to know more, you can look at my website “Resource Crisis”. www.cassandralegacy.blogspot.com


Ugo Bardi teaches at the University of Florence, Italy. He is a member of the Club of Rome and the author of “Extracted, how the quest for mineral wealth is plundering the planet” (Chelsea Green 2014)





Still on Track for the Collapse of Modern Civilization

15 10 2014

Originally posted on Collapse of Industrial Civilization:

BeFunky_null_u1.jpg

Two recent pieces of scientific evidence really hammer home the predicament of modern industrial civilization, and they have to do with the fact that our globalized, just-in-time economic model is hopelessly wed to carbon-based energy. Once one understands this, then there can be no delusions about why we are on such a catastrophic trajectory of greenhouse gas emissions. As was explained in a previous post, GDP is fundamentally and directly linked to CO2 emissions. Below, two graphs(click to go to source) illustrate this fact:

C02 emissions since 1850 (red); exponential growth (blue); cuts to hit climate target (dashed).

Graphic_PE_CoalUseIncreased

It’s not really about evil fossil fuel companies, although they do certainly exert enormous political clout and do conspire to protect their business model by doing such things as spreading doubt on climate change science, but as with all corporations, externalizing social and environmental costs is endemic to the profit system and the coercive forces of competition in capitalist markets.

Firstly, there is the graph submitted by…

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